Small clients are safe with dealers

By Latifa Abdin | Wednesday May 31, 2017

Almost nine in 10 advisors said their dealer firms don't encourage advisors to drop the smallest clients from their books of business. Advisor independence and the need to take care of growing clients' needs were cited as key reasons

Although Canada's brokerage firms and their investment advisors are shifting their focus toward high net-worth clients at the expense of clients with smaller accounts, dealer firms and their financial advisors are happy to take care of small clients' financial needs, according to the results of this year's Dealers' Report Card.

Advisors surveyed for this Report Card were asked in a supplementary question if their firms encourage advisors to drop their smallest clients from their books of business. Advisors overwhelmingly answered no, as 87% said their firm does not encourage dropping those clients. This response is in stark contrast with the 58% of advisors who answered yes to the same question in this year's Brokerage Report Card.

"I haven't seen a policy in place [that] would say not to bring any small clients on board," says an advisor in Ontario with Markham, Ont.-based Worldsource Wealth Management Inc. "That would go against the grain of what I'm trying to do."

For advisors at dealer firms, these smaller clients are advisors' target audience - and many of these accounts have helped advisors grow their businesses over the years.

"[The dealers] are trying to appeal to the masses and be an alternative to the larger brokerages," says an advisor on the Prairies with Lévis, Que.-based Desjardins Financial Security Independent Network.

Smaller clients are key for dealers because these clients usually need advisors' help and because of these clients' potential to grow and become larger clients over time.

"A lot of our newer clients quite often come from a referral from an existing client," says Mark Kent, president and CEO of Calgary-based Portfolio Strategies Corp. "For example, I could have a large client who might have half a million dollars with us and then one of their kids graduates university and the client wants to get the kid set on the right path for financial planning and introduces [their child] to us."

In addition, taking on a small client may pay dividends in an even shorter amount of time, as clients may be "trying out" an advisor before committing to investing all their assets with that advisor.

Says a Desjardins advisor on the Prairies: "What is a small client? I had a client with $5,000 who [now] has $500,000 with me - [within] about two years' time. Lots of clients don't tell you how much they have."

As well, advisor independence is a hallmark of many dealers, and the matter of dropping small clients is a decision many dealers leave to their advisors.

"We think all advisors have to run their business and make sure that it's profitable to them," says Robert Frances, chairman and CEO of Montreal-based Peak Financial Group. "Every advisor [must] set up his or her target market. [Our responsibility], as a firm, isn't to tell [our advisors] which clients to take on and which clients not to take on."

"Peak has a different philosophy," says a Peak advisor in Alberta. "No. 1 is independent advice; No. 2 is you look after the client. [The business] is yours to run; [the firm] doesn't care about the size of your book."

Advisors at other firms shared a similar sentiment. Says an advisor in Ontario with Oakville, Ont.-based Manulife Securities: "We're totally independent, so we run our businesses the way we want."

Although dealer firms don't encourage their advisors to drop their smallest clients, some dealers have mechanisms in place to transfer these clients if advisors decide to focus on more lucrative relationships.

"Our smallest clients are not dropped, but are transferred to head office, which will take care of them. We have this option," says an advisor in Ontario with Mississauga, Ont.-based Investment Planning Counsel Inc. (IPC).

"We have a mechanism [in place through which] advisors can move clients to the national desk, and those clients will have someone to talk to and take care any of their service issues," adds Chris Reynolds, IPC's president and CEO.

Some advisors, however, said they're under pressure to drop smaller clients as a result of recent changes in the industry - even though the firm doesn't actively encourage doing so.

"Because of [the second phase of the client relationship model], the outcome is inevitable," says a Worldsource advisor in Ontario. "[Regulators] are making [our business] so hard and so expensive [to conduct] that the smaller clients will be left behind - and the only place they will have [left] to go is their local bank, where they'll get no service at all."

"The direction in which the [Canadian Securities Administrators] is going is making [the retention of] our small clients [difficult]," echoes a Portfolio Strategies advisor in Ontario.

In fact, some advisors believe that with such changes taking place, policies at their firms regarding the dropping of smaller clients may appear eventually. "There's talk about that, but nothing is in place at this point," says an advisor in Ontario with Winnipeg-based Investors Group Inc. "Like any business, profitability is key."

"We're watching for that," adds a Manulife Securities advisor in Ontario. "This will be a tipping point. If [the firm] does that, it will be no better than the banks."